FEMA: The Governing Law for NRI Property Investment
The Foreign Exchange Management Act (FEMA) 1999, along with RBI's Master Direction on Foreign Investment, governs real estate investment by NRIs and PIOs (now OCI holders). Unlike resident Indians who can buy any legal property freely, NRIs have specific permissions and prohibitions.
What's Permitted Without RBI Approval
NRIs and OCIs can acquire (by purchase or inheritance) the following without any prior RBI permission:
No limit on the number of properties an NRI can hold. No restriction on the value per property.
What Requires Prior RBI Permission
Agricultural land, plantation land, and farmhouses CANNOT be purchased by NRIs without prior RBI approval. In practice, RBI rarely grants such approval to NRIs — so effectively, farmland investment is off-limits.
Note: This restriction is specifically on agricultural/plantation land. Urban residential plots — such as DTCP-approved residential layouts — are fully permitted.
Repatriation: How to Take Money Back
This is the area where most NRI investors make mistakes.
**Properties purchased using NRE funds:** Principal + capital gains can be freely repatriated (no limit, just normal banking process).
**Properties purchased using NRO funds or inheritance:** Repatriation of principal is limited to USD 1 million per financial year. Capital gains can be repatriated after paying applicable taxes.
**Rental income:** Can be credited to NRO account and repatriated up to USD 1 million per year after taxes.
Mandatory PAN Card
Any NRI buying property worth more than ₹5 lakhs in India must have a PAN card. Without PAN: the registration cannot proceed and TDS on rental cannot be properly credited. Applying for PAN from abroad: submit Form 49A via courier to NSDL along with passport copy and address proof.
Multiple Properties: Tracking Obligation
NRIs holding multiple Indian properties have reporting obligations under FEMA Schedule III if their total property values exceed certain thresholds. Consult a CA or FEMA specialist if you hold multiple properties worth ₹50 lakh+ in aggregate.
When You Sell: TDS by Buyer
When a resident Indian buys property from an NRI, the buyer MUST deduct TDS:
This TDS is deposited by the buyer with the Indian government. The NRI then files an Indian ITR and can claim refund if total tax liability is lower (after applying 54F or 54EC exemptions).